The Q2 earnings season is in its last leg with results from 381 S&P 500 members (as of Aug 2) already out which collectively account for 82.7% of the index’s total market capitalization.
Per the latest Earnings Preview, total earnings for these 381 companies increased 25% year over year on 10.4% higher revenues. Out of those that reported, 80.1% beat EPS estimates while 73.8% surpassed revenue estimates.
The Medical sector, earnings grew 15.1%, higher than 13.8% growth recorded in the first quarter. Revenue increase of 7.2% remained stable compared with the first quarter.
Demand for healthcare related products and services due to increase in baby boomers population is likely to drive the industry’s top-line. Further, a shift is being witnessed in the industry from inpatient care setting to home health-care, which has led to a decline in admissions for the hospital industry. It has nevertheless driven demand for home health-care workers — from nurses to aides and caregivers. Consequently, the companies providing services in this area stand to gain. A recent article from CNBC mentioned that nearly 10,000 seniors turn 65 in the United States, and the majority of them are hoping to age in their own homes.
“The demand for home care and hospice continues to grow as we see a graying of the U.S. population," said Bill Dombi, president of the National Association for Home Care and Hospice. Dombi further added that both younger and older patients are pivoting ever more toward in-home care
Moreover, prevalence of high deductible plans has kept patients away from hospitals until it is absolutely urgent or necessary to avail hospital services. These high deductible plans burn a hole in the patients’ pockets before they can seek relief from their health insurance cover. This has also led to a decline in admissions in the hospital industry.
While the hospital industry continues to face dwindling admission, high labor cost is another concern. Shortage of skilled nurses have led to a spike in personnel cost. Admissions have been suffering due to lack of adequate number of nurses required to take care of patients.
Let’s take a look at a few major Healthcare stocks scheduled to release second quarterly numbers on Aug 6:
Envision Healthcare Corp. is likely to witness an increase in revenues from its Physician Services segment (which contributes nearly 84% of the company’s revenues), driven by growth from acquisitions, organic sources, same contract revenues and net new contracts.
The company continues to make progress in negotiating its out-of-network revenues to in-network. In 2017, it migrated nearly $500 million of out-of-network revenues to in-network status. For 2018, the company targeted the migration of another $250 million of out-of-network revenues and achieved approximately $100 million of that goal till the first quarter. By year end, it anticipates less than 5% of total revenues to be out-of-network. The second quarter is likely to have observed continued migration of out-of-network revenue to the in-network status.
EBIDTA growth in the first quarter was primarily aided by operation improvement initiatives, which includes revenue cycle management, clinical labor management and operational efficiencies from support costs. Notably, these were started by the company in the fourth quarter of 2017, and primarily focused on its Physician Services segment. We anticipate the momentum to continue in the second quarter.
Envision Healthcare has an Earnings ESP of -0.26%. It carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult. (Read more: Envision Healthcare Q2 Earnings: What’s in Store?)
The company has an attractive earnings surprise history, having surpassed estimates in three of the trailing four quarters, recording an average positive surprise of 3.89%. This is depicted in the chart below:
Envision Healthcare Corporation Price and EPS Surprise
Tenet Healthcare Corporation’s (THC - Free Report) results are likely to reflect growth driven by new key initiatives, cost restructuring as well as solid performance by Conifer segment. Moreover, the United Surgical Partners International should also bolster its performance.
Tenet Healthcare’s Ambulatory segment has been performing well over several past quarters. The Zacks Consensus Estimate for this segment’s revenues for the second quarter is pegged at $505 million, up 7% year over year.
The company’s cost reduction initiative, which took place last year, is likely to support growth. The cost management program comprised headcount reductions and the renegotiation of contracts with suppliers and vendors. This is likely to decrease the company’s expenses and margins.
Tenet Healthcare has an Earnings ESP of +7.91%. It carries a Zacks Rank #3, which increases the predictive power of ESP. Consequently, this combination makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. (Read more: Can Tenet Healthcare Keep Earnings Beat Alive in Q2?)
The company has an attractive earnings surprise history, having surpassed estimates in three of the trailing four quarters, with an average positive surprise of 753.24%. This is depicted in the chart below:
Tenet Healthcare Corporation Price and EPS Surprise
Brookdale Senior Living Inc. (BKD - Free Report) is a leading owner and operator of senior living facilities throughout the United States.
Brookdale Senior Living has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, hinting at slim chances of a beat.
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The company doesn’t have an appealing earnings surprise history, having missed estimates in two of the trailing four quarters, with an average negative surprise of 28.40%. This is depicted in the chart below:
Brookdale Senior Living Inc. Price and EPS Surprise
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